The Internet has gained momentum as a leading distribution channel and brand presence in the virtual space has become more important. HVS Executive Search meets hotel department heads of e-commerce and distribution to discuss their strategies.

In May, London will host the 11th Travel Distribution Summit, where professionals from the travel industry will discuss the latest trends, innovations and challenges within the area of distribution. The first summit, in 1999, coincided with the emergence and increasing acceptance of the Internet as a booking and distribution channel. Since then, the industry has undergone significant changes and has increasingly sold its inventory online (see graph).


Source: Marcussen, 2008

In light of the increasing importance of e-commerce to the travel and tourism industry, all the more so during these economic times, HVS Executive Search has met with e-commerce and distribution department heads at a number of hotel companies to discuss their strategies and challenges. Specifically, we concentrated on the strategic aspects of e-commerce and online distribution, and the related talent issues within this area. The professionals who shared their thoughts with us, and to whom we would like to express our appreciation for having taken the time and made valuable contribution to this article, include:

  • Tim Davis, SVP Commercial Development & IT at Hilton Hotels
  • Rex Demanser, VP Distribution & Revenue Management at Kempinski Hotels
  • Martin Egner, Manager E-Commerce & Distribution at Motel One
  • Anwen Parry, Director Distribution & E-Commerce at The Rocco Forte Collection
  • Heiko Siebert, VP Distribution at Moevenpick Hotels & Resorts

So, just how big a source are online distribution channels for hotel chains today?

Most interviewees agreed that Internet-based distribution channels already generate a significant number of bookings and that the importance of e-commerce cannot be neglected. However, there seems to be a clear distinction between the luxury and budget to mid-scale sectors. During the interview with Martin Egner of Motel One, a leading player in the German budget hotel sector, it became clear that his hotel company is heavily reliant on online distribution channels; whether they are direct or indirect. Tim Davis of Hilton provided a similar picture for the budget to mid-scale brands of Hilton, which receive up to 60% of their bookings from online sources. However, the luxury hotel brands have a different story to tell. The department heads from the likes of Kempinski and Rocco Forte said that, for them, online bookings still represent a minor source of income. Also at Hilton, Davis could confirm that “as you transition from economy through mid-scale, upscale and luxury [brands], the amount of business that comes from online sources decreases.”

According to Egner the reason for this lays most likely in the fact that budget to mid-scale hotels offer a standardised product – prices are therefore more transparent. Davis stated that “simple and straightforward pricing, where the consumer understands what they are getting and they perceive it to be good value”, is one of the main drivers for online sales. He adds to this by pointing out that hotels targeting the lower end of the market outnumber luxury properties. Given their greater geographical spread and easier access due to cheaper price points, budget hotels therefore benefit from greater brand awareness and, more importantly, from a better recognition of the product by the consumer. Various researchers have asserted this, claiming that the more information (and hence better understanding) the consumer has about a product the more likely s/he is to buy it online. It is because of the industry’s dependability on information that online intermediaries such as Opodo or Expedia, as well as the hotel company’s own websites have become so successful: they have realised that the purchasing decision of consumers is almost entirely based on information received prior to the actual experience and deliver to this need.

The E-Commerce strategies

Based on the knowledge that the luxury market segment is selling relatively fewer rooms online than the budget segment, we were eager to find out whether there are any differences in the pursued e-commerce strategies.

Distribution partners and channels

In general, there was consensus with regards to the online distribution strategy. Most hotel companies are eager to reach myriad market segments by placing the room inventory in as many channels as economically feasible. Heiko Siebert of Moevenpick and Rex Demanser of Kempinski have stated that they find online travel agencies particularly useful in regions where the awareness of their own brand is not yet as strong as in other key markets. At the same time, the hoteliers made it clear that their strategy remains relatively focused on the direct distribution channels. This does not mean that in all cases the majority of bookings are received through direct channels; it is more of an indication of the direction in which the hotel companies would like to refocus their distribution in the foreseeable future.

Motel One, one of the smaller hotel companies in our sample group, appears to be the most selective when it comes to choosing distribution partners and relies heavily on its own website. Egner explains this by pointing out that there is little margin for negotiating agency fees in the budget sector. Therefore, the company is primarily working with regional players rather than the big online travel agencies. The two larger hotel companies, Hilton and Moevenpick, are pursuing a comparable strategy. Moevenpick lists next to its own website – the strongest single booking channel – the GDSs, GDS-based intermediaries as well as several online travel agencies as the key electronic distribution channels. These include, for example, Expedia, Orbitz, Priceline and Travelocity, as well as booking.com. Hilton uses similar electronic distribution channels but made clear that – whilst it is interested to have a broad distribution – it would not compromise on certain terms (e.g. price parity) and that it is generally more concerned about finding the right distributors rather than increasing the number of distributors. Even though it has hotels across the different market segments, it does not have selected distribution partners for specific brands. Nonetheless, Davis revealed that certain intermediaries sell some brands better than others, which is purely a reflection of the consumer.

At Kempinski, Demanser painted a different picture. He shared with us that bookings retrieved via the company website currently represent only a fraction of total bookings. However, he is planning to quadruple this figure within the next few years. With regards to online travel agencies, Demanser declared that Kempinski is very tough in negotiating agency fees, but is generally open to working with online intermediaries. Similarly, also at Rocco Forte, the majority of the bookings still come through GDSs and voice offices. Anwen Parry specifically mentioned that Rocco Forte uses online travel agencies not only because of the greater reach, but also because of the added value such platforms provide to the end-consumer; primarily in the form of convenience, as most of them are essentially one-stop-shops for travellers.

Future investments

All the companies we spoke to have recently heavily invested in their own IT systems and platforms (e.g. CRSs and content management systems), in order to maintain price parity across the different channels, and to ensure up-to-date information on room availability. Nonetheless, most interviewees made it very clear that they are not actively limiting/restricting business volume from online intermediaries; instead, they all aim at driving as much business volume as possible through their own corporate websites. The reason for this is fairly simple. As Parry put it, “The right distribution strategy is a question of maximising business volume without compromising too much on transaction costs”. While hoteliers can lower the distribution costs by driving more sales-revenue through their own website, they have to be careful when selling inventory via intermediaries where actual revenue contribution might be lower. Davis added a very interesting thought to the discussion - online intermediaries are often restricted in the number of listings and therefore have to prioritise the displays on their website. Understandably, they prefer to include a broader choice of hotels and are willing to compromise on the types of rooms and categories being offered per hotel. This is where according to Davis hotel corporate websites can provide a clear benefit to the end-consumers.

It appears that it is all about striking a balance between direct and third part distribution channels. Parry and Siebert highlighted that the industry, particularly during difficult times like these, is dependent on strong partners. Everyone agreed that online intermediaries add value to the distribution system; whether it is because they allow tapping of new market segments, increasing brand awareness, generating incremental business or selling distressed inventory. However, they also drew attention to the fact that these big players have become too powerful (Egner, Demanser and Siebert specifically mentioned the increasing consolidation of the market). Given the potential business volume that they are able to produce, many online intermediaries have reached a “critical mass”, which provides them with a strong position when it comes to negotiating rates and fees. While Davis agreed to all this in theory, he pointed out that the strong international standing of Hilton as a brand has helped the company in the negotiations with online travel agencies. He does however see the potential threat for non-chain hotels with low customer loyalty and thereby reiterates what several researchers have already suggested: that online intermediary brands might become more prominent than the actual hotel brands, and might turn into “information gatekeepers”, taking control of the shopping experience and the consumer data.

Identification of key characteristics and skill sets

So given the above and the continuing importance of e-commerce’s role in a hotel company’s growth, what are the key characteristics and skill sets needed to implement these strategies when looking for talent?

Analytical and strategic thinking is probably the most important characteristic of a person working in this area. When it comes to the skills required, Parry, like all her colleagues, pointed out that different positions require different backgrounds: “Ideally, Distribution Managers should come armed with a good level of experience and knowledge in CRS and GDS and some level of voice experience - companies such as Pegasus, Travelport, or any of the four GDSs should provide this grounding. Revenue Managers definitely need to have a strategic vision, preferably coupled with operational experience, but could also join from, for example, an airline background, who have historically been more strategic than hoteliers when it comes to yielding policy”. Parry goes on to say that “people coming from an online background (whether online travel agency or similar) would be a valuable addition to the e-commerce branch of the team”.

According to Demanser, “it would be advantageous if a Director of E-Commerce would have previous work experience with an Internet company, such as Google or Yahoo”. Yet, he would also see the fit if an individual had an operational background linked with experience in revenue management. Davis stated that “Hilton welcomes people coming from a marketing, sales or operational background (either within the hospitality industry or related sectors such as leisure, retail, consumer products and services, and travel), and generally anyone working with consumer marketing in the online world”. For the specific position of Search & Direct Response Marketing, for example, “Hilton would want somebody on board with a mathematical background; someone who is an excellent analyst but who also has the marketing awareness and understanding of the online distribution world”.

Generally speaking, all hotel companies agreed that this industry sector is in need of new talent as it is still a fairly new discipline. Demanser specifically mentioned the challenge of attracting people from other sectors. However, everyone pointed out that previous work experience, though important, would not be the major decision factor in the recruitment process. What is more important to the companies is the right combination of skills (e.g. commercial creativity coupled with analytical skills and marketing awareness), cultural fit and personal attitude. According to Siebert “Moevenpick is looking for implementation talents, meaning that the key quality we are looking for in an individual is the ability to understand large scale strategies and being able to implement them effectively”. When it comes to training, “self discipline” (i.e. taking the initiative to stay ahead of the latest trends and developments), as Davis put it, is a must.

In conclusion, we have seen that choosing the right e-commerce strategy and distribution partners can represent a long-lasting competitive advantage. Being present on the World Wide Web has allowed hotel companies to significantly reduce transaction costs, tap new market segments, increase brand awareness and gather consumer data for marketing purposes. However, hotel companies will struggle to retain such a competitive advantage if its approach is based purely on strategic partnerships and investments in the latest technologies and systems. After all, much of today’s technology involved in the area of e-distribution is easily copied. Therefore, it is the capacity to innovate or the ability to adopt, apply and use new technologies, which represents a truly competitive advantage. To achieve this, having the right people in the right slots is essential. Currently, the hotel sector is still very short on home-grown talent and is reliant on going outside to recruit, so it appears that there is opportunity for those hoteliers with an interest in this field to forge a career in the online world.

About Thomas Mielke | Thomas Mielke is an Associate at HVS Executive Search in London. A graduate in International Hospitality Management from Ecole hôtelière de Lausanne, Switzerland, Thomas has previously worked with real estate and hotel consulting companies in Germany and Spain specialising in hospitality related projects.

About HVS

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